Digital Financial Assets - How Asset Managers are Getting Ahead of the Wave

By Travis Lind, Managing Partner, Hirenomics, Inc.

Innovation is at the center of multiple conversations amongst investors, money managers, corporations, and governments. The way we see the world in the next 1-5 years, appears to be on a path towards significant innovation and change. Whether it is technology advancements in gene therapy, FinTech, electric vehicles, autonomous vehicles, or digital financial assets, there is no denying the world as we know it will be different.

With this insight, I am looking to share thoughts about on digital assets (Bitcoin, Ethereum) and why asset managers may want to do their proper due diligence. There are many alternative digital assets in existence. Bitcoin and Ethereum account for 85-90% of the market. Bitcoin has a market cap of approximately $1.033 trillion, as of 4/20/2021.  Although many people have discounted these digital assets in the past and present, there is a significant number of industry leaders who have embraced these innovations.

Some are creating large businesses around it.  Corporations such as MicroStrategy, Tesla, Square and others are starting to acquire Bitcoin either to be a part of their corporate treasury, or for the sole purpose of allowing customers to pay for their goods and services with bitcoin. Many financial institutions such as Fidelity, Blackrock, Guggenheim Partners, JP Morgan, Goldman Sachs, Deutsche Bank, Van Eck, to name a few, have started to create business units around this or are in the process of developing them. 

One of most significant actions taken, in my opinion, is the $100 million investment Mass Mutual made in Bitcoin in 2020.  To think a large highly conservative insurance company with a long-standing reputation for being conservative were to make this level of investment, certainly speaks volumes. 

Another prominent company to highlight is Financial Engines. They made a substantial investment (both in time and money) into digital assets.  Owner Ric Edelman, arguably the most successful financial advisors of our time, has become a major ambassador of the new digital asset wave. Ric begin investing in digital assets in 2014 and recently founded a new company called RIA Digital Asset Council (RIADAC).  The purpose of this company is to help educate, inform, and help create a resource for financial advisors to gain the knowledge to help them to advance in their practice.  The company has also created a certificate in Blockchain and Digital Assets.  In recent articles and podcasts, Ric has said that many financial advisors simply have too little or no knowledge about digital assets. With a significant demand anticipated from retail investors, it is paramount to be educated on how to advise your clients and help them navigate through this potential new asset class.

With all this background, the question I ask is how do asset managers evolve? Some are still hesitant and flat out believe this is a fad, however, many retail and institutional investors do not believe that is the case. I strongly believe the clients of the future who will have the greatest amount of wealth will be the millennial generation. Forbes said, “The millennial generation will become the richest generation in history as baby boomers transfer over their wealth.”  A large percentage of the millennial generation believe digital assets are the future. They understand technology and are attracted to the benefits of digital money. Knowing that, how do asset managers prepare themselves to be ahead of the curve?  How do they innovate and create products to address this new potential asset class?  How do they train their teams to be able to be subject matter experts, so that when they are in front of a financial advisor, they can add value and demonstrate credibility?  These are all important talking points and something I am sure forward-thinking firms are already doing. 

My suggestion to any financial professional, is to take the time to educate yourself about digital assets.  Find the resources to dig in and learn. Then, make your own conclusions. Do not count on random articles or opinions of colleagues who say that this is a fad or a bubble. You may be doing yourself and your clients a disservice for not taking the time to become educated. Learn to speak with the level of knowledge that may be required to provide advice to everyday people on how and where to invest their money in the broad spectrum of investments, including digital assets. 

For more information, please reach out to me by completing our Contact Us form.